One-Sample Tests of Hypothesis

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What is a Hypothesis?

It is a statement about a population parameter Hypothesis Testing

Its a procedure based on sample evidence and probability theory to determine whether the hypothesis is a reasonable statement

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Five-Step Procedure for Testing a Hypothesis

State null and alternate hypothesis Select a level of significance Identify the test statistic Formulate a decision rule Take a sample, arrive at decision
Do not reject H0 Reject H0 and accept H1

SCHOOL OF BUSINESS UAM PROF: HNVG

State null and alternate hypothesis

Null Hypothesis

Its a statement about the value of a population parameter

Alternate Hypothesis

Its a statement that is accepted if the sample data provide enough evidence that the null hypothesis is false

SCHOOL OF BUSINESS UAM PROF: HNVG

Select a level of significance

Level of significance

Its the probability of rejecting the null hypothesis when it is true

TYPE I ERROR

Rejecting the null hypothesis, H0, when it is true

TYPE II ERROR

Accepting the null hypothesis when it is false

SCHOOL OF BUSINESS UAM PROF: HNVG

Identify the test statistic

Test Statistic It is a value, determined from a sample information, used to determine whether to reject the null hypothesis z Distribution as a test statistic

SCHOOL OF BUSINESS UAM PROF: HNVG

Formulate a decision rule

SCHOOL OF BUSINESS UAM PROF: HNVG

Make a Decision

One-Tailed Tests of Significance Two-Tailed Tests of Significance

SCHOOL OF BUSINESS UAM PROF: HNVG

Example 1

The Jamestown Steel Company manufactures and assembles desks and other office equipment at several plants in western New York State. The weekly production of the Model A325 desk at the Fredonia Plant is normally distributed, with a mean of 200 and a standard deviation of 16. Recently, due to market expansion, new production methods have been introduced and new employees hired. The vice president of manufacturing would like to investigate whether there has been a change in the weekly production of the Model A325 desk. To put it another way, is the mean number of desks produced at the Fredonia Plant different from 200 at the 0.01 significance level? Assuming a 50 weeks sample mean of 203.5
SCHOOL OF BUSINESS UAM PROF: HNVG

Example 2

The Thompsons Discount Appliance Store issues its own credit card. The credit manager wants to find whether the mean monthly unpaid balance is more then $400. The level of significance is set at 0.05. A random check of 172 unpaid balances revealed the sample mean is $407 and the standard deviation of the sample is $38. Should the credit manager conclude the population mean is greater than $400?

SCHOOL OF BUSINESS UAM PROF: HNVG

Example 3

The McFarland Insurance Company Claims Department reports that the mean cost to process a claim is $60. An industry comparison showed this amount to be larger than most other insurance companies, so they instituted cost-cutting measures. To evaluate the effect of the cost-cutting measures, McFarland selected a random sample of 26 recent claims. The mean cost per claim was $57 and the standard deviation was $10. Can they conclude that the cost-cutting measures were effective? Or should they conclude that the difference between the sample mean ($57) and the population mean ($60) is due to chance? Use the 0.01 significance level

SCHOOL OF BUSINESS UAM PROF: HNVG

Example 4

The mean length of a small counterbalance bar is 43 millimeters. The production supervisor is concerned that the adjustments of the machine producing the bars have changed. He asks the Engineering Department to investigate. Engineering selects a random sample of 12 bars and measures each. The results are reported below in millimeters. 42 39 42 43 40 39 41 40 42 43 42

Is it reasonable to conclude that there has been a change in the mean length of the bars? Use the 0.02 significance level.

SCHOOL OF BUSINESS UAM PROF: HNVG